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What happens you buys a $442,000 house with $433,000 in financing? Well, here’s Jim and Vesha. I told you about them a month ago. “Thought your readers might want an update,” Jim wrote me last night. And we do. We love drama.

The kids, who make 130K between them, drank the Kool-Aid and bought a semi in Victoria with 5% down three years ago. After 30 mortgage payments they realized the house was consuming them. “We weren’t saving a dime,” he says. Worse, the place wasn’t rising in value and the mortgage wasn’t being reduced. Real estate prison. So they listed back in February, at $475,000, pissing off the neighbours who found it too cheap.

But buyers found it too dear. Three price cuts later the house was at $449,000.? “We are starting to get worried,” they said a month ago, “ some of my friends in similar situations are worried too – but most of the idiots out there still seem to think prices are rising.”

So, here’s the rest of the story:

“After more than 100 days we finally sold, to a 25 year old hottie newbie realtor. Purchase price you ask? $442,500 – the exact same amount we paid for the half-duplex just under 3 years ago. So for the meantime we are taking a step back and moving into a suite in a brand new home our friends own for about half the monthly cost allowing us to put away $1200/mo. On one hand when I click on HGTV it feels rather depressing, but on the other, knowing we can pay cash to go to Maui in November for our one year anniversary while still saving oodles of cash feels pretty good.

“Well lesson learnt, had we taken all the money we kicked into this place over and above rental costs over the last three years I bet we would’ve had at least $70,000 to show for ourselves now.? Our exodus from ownership is actually quite liberating, now we can just pick up and do what we want for a bit, wait till things cool down, build up some savings and security and eventually build our own modest shack at reasonable prices with a realistic plan in place for the future.

“The real irony though, well that was the stabbing two doors down on Saturday night, but shhhh don’t tell the buyers!”

This couple that lost three years because of a house. They walk away with far less than they put down, and during the intervening time, occupancy costs far outstripped what they might have paid in rent for the same place. They gambled big – using extreme leverage in the hopes of scoring a capital gain – and were lucky to exit without major losses. Chances are the people just listing their homes now will have less luck.

Buying that semi was not a rational, logical, deliberated decision. Jim and Vesha, like most young house hornies, were egged on by peer pressure, family, media and government. They prove once again that in anything but frothy, bubbly, irrational markets (which never last), home ownership is a losing gig. People who think they are ‘buying’ anything with 5% down have way too many hormones. Instead, it’s a trap. It’s why banks always win.

One theme here over the past three years is the wisdom of investing in liquid assets instead of illiquid houses. Not only would it have taken 15 minutes to sell ETFs, bonds, stocks or preferreds –? instead of 100 days – but the returns inside a balanced portfolio are more certain.

Actually, an economist at the US Fed just proved it. His research paper debunked the notion of houses building wealth better than? investing, showing that half the time it’s the opposite. Said Jordan Rappaport: “For many households in many years, renting and investing the saved cash flow has built more wealth than homeownership.”

Interesting, stocks have outperformed real estate in the US consistently since 1980 – and that even included the subprime bubble years. As Jim and Vesha just learned (and many more are about to), there’s been no money to be made during Canada’s current bubble when you have a ginormous debt hanging over your head. Five/35 is a cruel hoax.

Of course, this is about to slip from being amusing to abusing. With real estate now entering a decline phase, it means tens of thousands of other young couples will surely come to the same conclusion. Renting wins. All booms end badly. Bubbles burst.

Just to underscore this, I hope you noticed the latest news from the south. American house prices are (on national average) back to 2002 levels. They’ve fallen 33.1% from this time five years ago. Still falling. Homeownership has dropped from 69% to 66% and is expected to hit 63% – where it was fifty years ago.

Here’s the thing: it’s not that Americans can’t afford a house. Hell, they’ve never been cheaper in terms of income. But people don’t want them. Demand has withered. If the object is financial security, then housing can be a death spiral. That’s now obvious.

Jim and Vesha may have lost three years. But millions in America burned a whole decade. Legions here continue.

You have access to the MLS stats. What about xxx xx Douglas xx SE? Was listed at $659,900 and then $629,900. Just sold for $592,500. City assessed at $721,000. Was initially purchased in 2007 for $719,000. [Is this correct, I’ve had to surmise from web info].

That’s $126,500 loss in less than 54months tops = $2,342/month. Add $250/month for property taxes. What can you rent for $2,592/month in this City and not have to pay a commission to get out of?

One example, not everyone is in the red but there is a good chance if you bought after 2006.

Mr. Turner, your comments are very telling indeed. It is about the wealth effect or how wealthy people feel. Remember a few years back when equity was rising and HELOCs provided for toys and the like. The situation is different now, people are getting in and settling because they have been marketed to believe that home values will get out of reach……..get in while you can. This is very different than feeling wealthy.

In fact today’s business section of the Herald was commenting on the fact that the local coffee house will soon inflate the price of Java because of inflationary pressures. Checked the price of gas and food lately. What ever wealth effect there was a fews years ago is gone, now the market is driven by the ……get in before it is too late. When that wears off and is seen for what it is…….watch out folks, the correction will be around the corner.

Garth’s advice in this regard is all relevant to timing. The same advice taken by young couples three years ago in the Vancouver market would have translated into losses of potentially hundreds of thousands of dollars. In contrast, if you rented and socked your dough away when real estate prices were flat during the decade between 1991-2000, then you were a genius. Timing is everything. Also, according to Jim Rogers, those who invested in commodities made ten times as much as those who invested in the stock market in the last decade. No comparison. Whether that will repeat itself again in the next ten years is anybody’s guess. Once again, timing is everything. There is no golden rule that applies to all people at all times.

This sounds a lot like our story…paid way too much for a fixer-upper back in ’05, got a HELOC to pay for all the renos and improvements. At its highest, our debt was $148,000 on top of the mortgage. Pulled the plug and sold at a huge loss two years ago, been renting ever since. Talk about pain! Horrible.
But, we’ve survived, are now debt free and have a decent savings account going, and are a HELL of a lot smarter.
Sometimes, you just have to learn the hard way.

“As long as the politicians refuse to restructure debt and continue to run large deficits with artificially suppressed interest rates, the purchasing power of all currencies will plummet over the years ahead. The unintended consequence of pursuing reckless monetary and fiscal policies will be extreme inflation and a currency crisis. ”

Americans will now have learned the lesson that houses don’t always pay. So they will shun them while they are cheap. Once they double in price, Americans will get more interested in buying.

Canadians are still buying houses High and Americans are selling houses Low.

To the wise contrarian can go the spoils. Think buy low. Buy when it is unpopular to Buy. Sell when it is unpopular to sell. Contrary to those who think momentum investing is the way to go, in houses or in stocks, you cannot beat the crowd by going with the crowd.

Just how low can house prices go? Remember only a few years ago all of the talk in the US was about just how high can house prices go, remember, “It was different this time” in the US also, just like in Canada. Now the results of a bubble have switched the conversations to just how low can house prices go.

The one problem with this story which aired tonight on CBS Evening News was the reporter compared the value of the house at it’s time of purchase back in 2002 to what they are going for in the present. The same house he used as a comparison would have cost 2 to 3x in 2006 at the peak of the bubble versus what it was originally bought for.

What you should take from stories like this are when a bubble bursts, prices ALWAYS come crashing down farther than the point where the bubble originally started from. That is what makes them so financially destructive.

ok, house on 88 7th street in toronto listed $499,000 just sold tonight $630,000 so how the hell do we ever buy a house in toronto, we are two teachers make combined $ 175,000 per year, we can’t get in. What the hell are we to do, rent forever, this is crazy.
Surely two teachers can figure out this is a temporary bout of herd dementia. Wait. — Garth

And that’s also pretty much my story; except I lost about $10k on the purchase price over just over 3 years.

Here’s how it works: if your ownership costs (mortgage, property tax, condo fee) is higher than equivalent rent, you’re betting your property will appreciate in the future to equal more than the sum of your expenses. Ah, but the “intangible benefits” of ownership! Far outweighed by the tangible liabilities: cutting grass, shoveling snow, replacing the roof, fixing the furnace, replacing the water heater, replacing the siding, replacing the fence, replacing the kitchen, replacing the floors (you will be living there a couple of decades, no?). Don’t forget to add CMHC insurance to your purchase price, and subtract at least 5% from the sale price for agent fees and transaction costs.

The Phantom is back from the east, at home in the west, and loving the return to the work-a-day world…I enjoy some of the wisdom being shared here on homes and shorting the markets…god bless contrarian investors! Anyway, the boys require tucking in and I’ll have to depart for now but keep the comments coming folks as prosperity (as evidenced by today’s post) is sometimes only a suggestion away
the Phantom

The mistake that Jim and Vesha, and so many more like them have made is: buying more house than they could actually afford on the expectation that prices always go up.

First, there is nothing wrong with buying a house, even if prices are high, if:

1) you really want to make that house your home for personal reasons, not just financial reasons (i.e. nice neighbourhood, good schools, close to work, close to family, far from family, etc).

2) you plan to live there indefinitely (e.g. to raise a family in a stable, safe community). Home ownership is expensive. If you move often, you only magnify those expenses because you are paying for the same things over and over (transactional costs, new furniture, decor, new appliances, taxes, new landscaping, etc.)

3) (and most importantly) you can actually afford it. Affordability does not mean you can manage to scrape together enough cash to pay the carrying costs IF: you never lose your job, work plenty of overtime, get that big bonus, never have unexpected expenses (like a new transmission or braces for your kid’s teeth), and you spend hours every week clipping coupons.

Affordability means that after paying all the expenses (mortgage, taxes, insurance, maintenance, utilities, repairs, etc, etc, etc) you will still have enough money to invest for your retirement, put your kids through school, take a vacation once in a while, eat decent food, etc). And you should run a worse case scenario, like if you become unemployed for while for some reason.

Prices are a issue, sure. But the bigger problem is poor budgeting and financial planning. Or buying your house for capital gains. Or buying to trade your house in a year like some NASDAQ stock.

What an interesting paradox. Houses are quite cheap in the United States and most people aren’t in a buying mood. Meanwhile in Canada where housing is expensive in most locales, and especially in grossly over priced Toronto and Vancouver, houses are still selling. That’s the exact opposite of what you would you would intuitively expect.

How is someone who makes 130k unable to save anything after making their payments on a 433k mortgage? That is roughly $1700-1800 per month, if you’re pulling in 130k you should be able to easily handle that, plus any additional house-related expenses, max out your RRSP and TFSA, and still have enough left over for a lot of fun.

As late as the 90s the bank lending guidelines were capped at 75% of appraised value. And farther back there was a Toronto gadabout named Dr. Morty Shulman who told folks they were crazy if they borrowed more than three times the gross income of the major breadwinner (read: Husband – these were the old days), or put less than 25% down.

The problem with stories on this blog lke the one above is that they seem to have little relevance to that great gaping centre of the universe – the City of Toronto. The number of numbnuts who are paying a 30%+ premium on properties being flipped after 1-4 years is astounding. Can’t we just agree that there are a lot of stupid people in Toronto, and that is the ‘market’ as we find it?

PS -MEMO TO BILL JOHNSTON, PRESIDENT OF TREB:

1. The next time a sleepy do-nothing Canadian ‘watchdog’ agency gets a new boss from Toronto (not Ottawa or Montreal) who thinks she has to do something for the bloated tax-supported budget she has, don’t go to the papers and call her use of that agency’s legitimate power in the public interest a ‘careerist’ move. Whatever the opposite of Charlie Sheen’s mantra is, you just bought it with that little gem. Be prepared to now have your nuts handed to you on a plate. A good Communications Director would have jammed a sock into your pie-hole to stop that little fit of cartel pique.

2. Who came up with that lame “privacy concerns’ retort to why the GTA consumer can’t have the same access to relevant information as the average reader of Redfin or Zillow? Is Sarah Palin now a lawyer on your payroll? Better check her class-standing. Sounds like you bought another turd on that one…

Ironically, in Toronto all that the more transparent dissemination of information ( e.g., real DOM vs agent churn DOM, or closed sale pricing) may do is shine more light on how stupid the average Toronto buyer may remain – not sure it would affect decision-making as long as lender cocaine is so freely available, thanks to a truly dysfunctional outfit, CMHC.

To quote my favourite son from a place outside Toronto they call “Brampton”: “Somebody gonna get ahurt real bad….”

Is that Sarah Palin on her…”Memorial Day Justice for all,motorcycle campaign”?

Read all about it in JHK’s review

“I prefer to be direct. Sarah Palin represents a dangerous force in American culture that is startlingly similar to the grandiose hyper-patriotic militarism that Hitler brought to Germany during his rise to power. We have better things to do in this nation than go down some twisted path of vengeance-seeking in the name of lost glory. I hope that Sarah Palin’s competitors on the right will stand up to her American fascist themes and call her out for what she is: a half-educated TV performer unqualified for high political office. The true shame of this country is that we have to take a clown like Sarah Palin seriously.”

And how about this for shocking headlines that
contain all the intrigue of a Ludlam novel….

“A new report prepared for Prime Minister Putin by the Federal Security Service (FSB) says that former International Monetary Fund (IMF) Chief Dominique Strauss-Kahn was charged and jailed in the US for sex crimes on May 14th after his discovery that all of the gold held in the United States Bullion Depository located at Fort Knox was ‘missing and/or unaccounted’ for.”

Hi Garth and Fellow Blog Dawgs,
I’ve been watching quietly from the sidelines. Something interesting on the west side of Vancouver (Delusion-Central) — a growing number of houses sitting vacant. Most have sold recently. Are they waiting for the demolition team/contractor to arrive? I don’t recall seeing so many houses sitting empty. Several I know were owned by Asian families, many who lived in Vancouver only a portion of the year. Something is starting to happen, but quietly.

A property I run by almost every day sold last summer for $2 million. They rezoned it to have 2 “main houses” and one “laneway house” on it. But the contractor seems to have gotten cold feet because it’s back on the market for $3.19 million. Lots of houses for sale in my neighbourhood (where we’re renting) — nothing under $2.3 million.

Sometimes I think we’re the only sane family in Dunbar. Yet it feels strange to be the only reasonable people in a madhouse.

Rent just covered known costs but we were counting on capital appreciation.
Needed some work some known;
Deck replaced 5,000
Furnace fixes 500
Washers and fridges 1,000
Travel costs from up island 700
Cost of oil doubled loss 1,200
Other repairs est 2,000
Evicting bad tenets 1200 loss in rent.
Tentets moved out below loss 750
Reno to sell in 2005 8,000-9,000
Total rounded for above items 20,000
Sold in 2005 for 333,000 Ya we made a shit load of money in 16 months!

Oh Wait;

333,000-260,000= 73,000
73K-20K = 53K
Carry costs while on sale and during reno 3 months about 6K
53K-6K=47K
Realtor fees and Lawyer with tax about 15K
47K-15K = 32K
Bank fee 3K
32K-3K= 29K
Loss opportunity cost on 60K down payment say 3K
29K-3K=26K
oh ya closing costs to buy say 3K
26K-3K=23K
Property transfer tax cant remember so say 2K
23K-2K=21K
So we made 1,300 a month not bad but was a lot of work I did the Reno’s myself, tenants sucked made life harder. All this on a house that went up 28% or 73K and seemed to cover itself on paper. We did not buy another rental could not find anything that would cover its self. Thought the market had run its course, maybe a year or two of gain left so we stayed out. If I knew CMHC was going to change the rules like they did I might of stayed in to ride it up more.

So How are people with 2nd properties that don’t even come close to covering themselves who bought in the last couple of years going to fair? I think they will panic, I felt a bit of that in 2005 when we were the only listing with a suite then the next week there were 6 and some cheaper by a bit.
We also felt it a bit of panic when we sold our home in the fall and winter of 2008/09 were we had over 70% in the game not 2-5%. The virgins who lost there cherry over the few years are going to panic.

The saddest part of all this is the strain it will put on young families not just financially for years but things like, putting off having kids, divorce, stress, health issues, abuse, or worse. This is what I think of when Garth says “ This will not end well”

PS;
Thank god the realtor bought us a membership with “rental owners management society (ROMS)“Al Kemp @ ROMS was well worth his small annual fee for his help.
And sorry for some typos; ran out of time.

Well congrats Jim and Veesha, but I suggest you never consider owning again. You make $130K (take home 90 or $7K+/mo) yet couldnt deal with a $2500 mortgage payment? ($430K, 5%, 25 yrs). You obviously werent willing to compromise your lifestyle. I also suggest no children.

I have a similar story. Moved to ottawa. Lived in a wonderful home for 2 year and then sold for 5K more. But with realtor commisions 20K less.

I consider me lucky cause if I rented I would have broken even. But if I did rent, my cash would have doubled in the stock market … between 2008 – 2011 … arg

But that’s life … we are now renting an acreage outside Ottawa and like it … but my visiting mother-in-law just hates the place. Blames being sick on it. Why … because she want us to buy big! The communications to me are straight forward.

Even after she lost 100K selling a place in West Vancouver, had a place to stay for free but instead she jumps back in RE in Richmond … wow, I’ve stopped trying to reason with this woman. She is upset for loosing 100K and jumps back in … wow … how can you reason with that?

P.S. I love my wife – she understands – a rental is a rental and long term thinking is best.

“Just had dinner with a business associate in Wisconsin. He said to me: “Seriously, people in Canada don’t realize they are in a housing bubble?”
———–

But that’s exactly the nature of a bubble. Unlike the tooth fairy, a bubble exists because few believe in them. The moment a bubble is recognized as such by a critical mass… its over. Pop or slow deflation, it matters not. The outcome is the same. Equity that never really was, soon really isn’t.

121 Rory – from last blog re Canadian millionaires. I
found a very wide range for this from a multitude of
sources. As high as 1.7M Canadian households if you
include the house, as low as 160K households if counting
only financial assets. Somewhere around 13M households total (my guess).

–
“Foolish. We love drama.” — Here on Garth’s demented blog, we’re all drama queens for a group of whacknut dingleballs!

“It’s why banks always win.” — At least this couple got out relatively unscathed. but there will be plenty more who have to bite the bullet big time.
*
#21 Jsan — “. . . when a bubble bursts, prices ALWAYS come crashing down farther than the point . . .”

Can’t say it any more clearly than that. Nicely pointed out.
*
#190 Hoof – Hearted — Brings back memories of Ronnie Reagan’s ‘Star Wars’ speeches in the ’80s. He said it — we get it!
*Public Banking beats private banking hands down, and here.EU (and IMF) plan to strip UK of banking powers. They obviously weren’t any good at it, anyway. Putin Just like the US Prez (forgotten who) did when GD1 was teetering off, he introduced make-work projects in order to stimulate the economy again (along with WW2). Putin is doing the same in Russia. Greece Is this the future of NAmerica?

China tells Japan and the US hands off over Mongolia. Obama Removing citizens’ rights to own guns (at least trying, by Executive Order). BP Remember them? They are also one of the founding members of the carbonazi tax. US Treasuries and various assorted other fiscal goodies and charts.

Conspiracy DSK is a ‘victim’ of the US, primarily because he knew that Fort Knox has no gold and was trying to hush that news up. Another DSK? The CIA is quite good at framing people. One More. The word alleged means nothing is proven.

Questions Interesting what happens when someone asks questions about the higher-ups. 6:44 clip Homeschooling does seem to have advantages.

Best way to stop bubbles is to go back to REAL valuations, not simply look at a currents suburbs sold list. At present valuations are really pric-uations a REAL house valuation is how much income it can produce. If mortgage valuations were based on rental return say 8%pa, many million dollar crack shacks whose rental yield is 3-4%pa would be revalued at 50% of their current pricuation.

Ever noticed how property bulls don’t talk about rental yields only price and have no concept that price and value are two different things.

In the US, what you may not have heard about, is that HUD (one of the great champions of giving things away for free in redistributive heaven for the “economically challenged”) is that those who work twenty hours a week and have “other” economic difficulties are being put into the foreclosed housing with zero interest loans And receiving 105% loans so they receive moving costs. This is causing quite the uproar as those from the “hood” move into suburbia where at least some of the housing is still occupied by those who had to work to buy the house, and would like to believe they live in a “middle class” neighborhood. Meanwhile, the “hood” folks are bringing their gang banging ways with the, and that’s the commotion I was talking about. AT first with the housing boom we saw a lot of moving around as people were cashing out houses and moving to different areas to play flip the house. Now we are seeing huge numbers of welfare families move to where the benfits are, and those benefits include the aforementioned foreclosed upon houses.

I’ll point out that Jim and Vesha have got off lucky. All they did was lose opportunity cost on potential savings invested. Their loss was restricted because of the three year period of near zero rates. My point being that this will not be the case for anyone still holding a zero down ( heloc enhanced) 5/35 as long rates begin to inexorably creep up. They will calculate that they have got off cheap with little more than burned ego’s…..rates only have had to have risen 1% during the time of their ownership an it would have been a much uglier story they’d be telling. Carney has again turned to his master for guidance and done nothing. And our press was touting this fool for the head of the IMF? Only if he is better than a rapist is he World Bank material? God help us.

ok, house on 88 7th street in toronto listed $499,000 just sold tonight $630,000 so how the hell do we ever buy a house in toronto, we are two teachers make combined $ 175,000 per year, we can’t get in. What the hell are we to do, rent forever, this is crazy.””

Move to Vancouver. Plenty of part time ESL teaching positions available. Your wages would amount to $140K (maybe) and that house would surpass a million. For an added bonus you get a crack head in the alley out back.

And that’s also pretty much my story; except I lost about $10k on the purchase price over just over 3 years.

Here’s how it works: if your ownership costs (mortgage, property tax, condo fee) is higher than equivalent rent, you’re betting your property will appreciate in the future to equal more than the sum of your expenses. Ah, but the “intangible benefits” of ownership! Far outweighed by the tangible liabilities: cutting grass, shoveling snow, replacing the roof, fixing the furnace, replacing the water heater, replacing the siding, replacing the fence, replacing the kitchen, replacing the floors (you will be living there a couple of decades, no?). Don’t forget to add CMHC insurance to your purchase price, and subtract at least 5% from the sale price for agent fees and transaction costs.

+++++++++++++

Since I sold and became a “basement dweller” a few years ago, I shaved almost 10 strokes off my golf game. I can consistently peg out a 275yrd drive but have completely forgotten how to hold a rake. LOL!!

Hey Garth, I sold my condo in Abbotsford and put the entire proceeds of the sale into gold and silver pool accounts back in 2007. Thing is I’ve seen a great deal of growth (bought lots of silver at $12/oz). Do I pay capital gains on the growth? Should I cash out and pay in silver coin/bars for a balanced portfolio of investments such as you’ve advised? What is gold/silver classified as in terms of tax implications?

I live in a high-rise. Someone on my floor farted in the space between the elevator and my front door. Farts are invisible so I was obviously caught off guard by olfactory feast. By the time I actually smelled this fart, I realized the molecules had already entered your lungs….and I was pissed.

Anyways, my whole point is that paying $420,000 for a box in the sky that includes the occasional inhalation of a neighbors fart is bullshit. I look forward to the day I can afford a single-detached-home and say goodbye to these overpriced rat cages in the sky.

By the way, I rent this place…I may be stupid enough to walk into an invisible fart-field…but not so stupid that I’d pay $420,000 for a condobox!

Affordable real estate prices are a long way down and have not been seen in at least a generation. Right now affordable means between 30 and 60 thousand for the the average residential property. The difference between that and the market prices is why there is big problems in store for canada.

Renting can be a GREAT thing. Good for Jim and Vesha in Victoria (and the many others) for selling and renting at the RIGHT TIME, now.

Renting is liberating, real freedom for 1/2 the cost of owning right now. You’ll also get to take advantage of career opportunites as they come by moving around the city or country while other home owners can’t.

Sure houses, like candy is sweet. Eat too much of it as you get sick, a sick economy that is.

We are owned as members of this empire and are losing our right to live clean, off the grid and free from the “forced needs” we as a society have been brainwashed to think we need. I guess it makes sense, if everyone was to produce their own energy, drink their own water, and grow their own food, and build their own home, the rich who run this country would no longer be rich! And they know it! And they are going to fight it till their death!

“This doesn’t affect me.”

We don’t speak or cause or reason.
We just listen to the cries of those who have passed before us.
We listen to our grandfathers recount the horrors of napalm bombs
and deadly marches,
yet continue to add our own.
Replacing napalm with atomic, and Nazi’s with Iraqi’s.
Our people go on starving and the machine keeps on turning,
and churning,
and burning.
Our farms are closed down.
The old men sit in their empty houses wondering why they let it slip,
but we simply go on thinking.
“It won’t be as bad as we think”
“This does not affect me”
“I still have my cable”
“I have my car, my house is still here.”
They think like this until it’s all taken away.
Then they become Grandfather’s counting the horrors of their time.
They sit in the chairs wondering how they could let their farms slip away.
They watch the people who are now thinking.
“This doesn’t affect me.”

I was in a nameless local bank today. Just paying a cell bill. The clerk asked “partial of full payment?” and I said “all of it” like I usually do.

But then I got curious and just had to ask….”Do a lot of people pay only partial amounts on cellphone bills?”.

“Oh yeah, he said, lots of people” and then he added in a slightly quieter conspiratorial tone “they come in here with monthly phone bills in the hundreds of dollars but never even bother to put a single penny away in an RRSP or savings account”

You are doing well. According to Statcan, the median after-tax income in 2005 – All private households for Toronto was ($) 46,236. Add the inflation and everything, I doubt that means more than 60k today.

I know one thing for sure and that’s you only get 1 life to live. If you choose to make it one of sacrifice to please your sense of vanity and the perception of self worth from obtaining material goods life is not really worth living. Why bother killing yourself to maintain something you clearly cannot afford and sacrife all the beauty life has to offer when really you only rent it in the end? You can’t take your hard work or home with you when you leave this world.

What to say – Jim and Versha by all accounts most likely forgot the most important thing when they purchased their home – budgeting all the other hard numbers – the mortgage is one thing – the other factors is what stresses any budget – I laught at them for their stupidity – if they can make a combined $120K – while my younger brother who makes under $40K and a house fully paid off in just 10 years – its actually sad –

No one can time the market – a right time and wrong time to buy – I say that depends on each individual and their personal goals .. we wouldn’t be in this mess if people actually spent a few hours, pencil and paper and working the numbers would have saved them years of heartache and pain.

I myself, like thousands upon thousands of other home owners are using this once in a lifetime ultra low interest rates and kicking this mortgage monster to the ground – budgeting – geez – its not rocket science – in just over 2 years, I’ll have my very first home fully paid off – and then I’ll use the funds that went to my mortgage and build my nest egg –

I just copied what my parents did before – set up a budget and stick to it – period –

And G-Man, surprised you quoted that as house prices are at 2002 levels and now affordable to the average american but they won’t touch it – how does that saying go – when the masses run – you buy – when the masses buy – you run…if only I had a few extra bills lying around – I’d be buying property in the states and within a few short years -this frenzy of home ownership will return –

As long as the media pumps out fantasy lifestyles – making a quick buck without any effort – this circus will continue to play on…..

I actually quite agree with Elmer #32. This couple could easily afford the payments on a relatively modest house for someone with that income but you can see that they have other priorities like Maui and such. I am sure their entire life is similar with lots of consumer spending.

I purchased a house with almost nothing down and much less income than this couple in relative terms. I also paid it off completely in 14 years entirely by cutting out most consumer spending. The problem with a lot of younger couples is that they watch the home reno shows and such and want a designer house NOW along with no changes to their lifestyle, they still want to eat out all the time, have nice clothes and cars and got on vacation. If they can’t have all that then they feel hard done by. It would be a better story if they had say an 800K mortgage but for them to complain about their housing costs on that income means they will be rudely surprised if and when mortgage rates go up and they get back into the market. They could have used low interest rates and 30 months as an opportunity to pay down the mortgage ASAP but of course that would entail changing their lifestyle and we cannot do that.

I agree, don’t forget most of the summer off too. I am a Financial Planner and find most teachers are making $70,000-$90,000 a year. No wonder everyone wants to be a teacher. If it were left to the devices of supply and demand those salaries would be a lot lower.

Last week I wrote how 2011 would play out. BOC will not raise rates. Why. They cant. Every day another company leaves for the good old USA. The word on street is this.
Do you honestly think companies will invest in Canada when housing and cost of living is 25 to 50% more.
Ask yourself this question. When offered 100K in salary.
Would you sell your $500 3 bedroom home and move to U.S and buy your dream home on a golf course, keep 250K for yourself and reduce your cost of living.
Your virtually retired. For the last 100 years average cost of home between 2 countries has been almost identical. Well not anymore. Ladies we have a blip here. So ask yourself what will happen. Will U.S. Prices go up or will we go down. I think we all know the answer.

Houses, especially larger ones, are supremely beautiful devices by which FIRE and municipal governments extract ever-increasing proportions of hard-earned money from their owners.
When water meters, garbage taxes, municipal taxes and other creative taxes surely to come add onerous annual amounts (that are nowhere near related to the quoted “rate of inflation”) to your carrying costs, do you really feel that you “own” your home?

There is nothing wrong with buying a litre of gas at $1.40, even if the gas station right across the street is selling at $1.30 and McTeague’s website says prices are going down 4 cents tonight, IF:

1) You plan to burn the entire litre of gas in your own car instead of treating it as a speculative investment,

2) You’re filling up the whole tank at once. Driving around spending $40 at a time is expensive in terms of your time, and it just isn’t worth it.

3) You can actually afford the litre of gas.

Sounds silly, no? So why do people think they sound smart when they apply similar logic to the housing market? Buying an asset now even if you think prices may fall and there are reasonable alternatives (renting) is just poor practice.

Many people talk about going back to the halcyon days when personal use housing wasn’t an investment. Such days haven’t existed in millenia, and they certainly don’t exist now. Even if you don’t plan on making any money from your home (a likely scenario in many locations), you certainly shouldn’t be planning on losing a pile.

I’m sorry, but 130k between them and such a small downpayment? Overspenders, I say.
Even after buying the house, the mtge payment must have been around 2k, so with an after-tax income of almost 6k per month, the other 4k in expenses, including house maintenance, property taxes and all other living expenses should have been more than enough.
My family of 4 lives on one income several tens of thousands under 100k/yr gross, pays 1k in rent and saves 1k per month.
So I say: they’re overspenders.

Jim and Vesha clearly have some serious spending habits. A $442,000 home divided by a $130,000 combined income is equal to 3.4 times income, which by all accounts is not unreasonable. Their GDS ratio is well within the acceptable range (approximately 19 – 23%, depending on the interest rate of their mortgage).

What is equalling baffling is that this intrepid couple apparently couldn’t save diddly for a down payment, but are now diligent savers because they are now renting?
There is far more to occupancy costs than just the mortgage payment. — Garth

Dick Armey’s organization, FreedomWorks was behind the creation of a fake grassroots web site called Angryrenter.com which rallies opposition to “the Obama Housing Bailout.” The site urges people to oppose bailing out mortgage companies. The site claims to represent “Renters and responsible homeowners against a government mortgage bailout.”

Michael M. Phillips, a reporter with the Wall Street Journal wrote about AngryRenter.com:

AngryRenter.com looks a bit like a digital ransom note, with irregular fonts, exclamation points and big red arrows — all emphasizing prudent renters’ outrage over a proposed government bailout for irresponsible homeowners. “It seems like America’s renters may NEVER be able to afford a home,” AngryRenter.com laments. The Web site urges like-minded tenants to let Congress feel their fury by signing an online petition. “We are millions of renters standing up for our rights!” Angry they may be, but the people behind AngryRenter.com are certainly not renters. Though it purports to be a spontaneous uprising, AngryRenter.com is actually a product of an inside-the-Beltway conservative advocacy organization led by Dick Armey, the former House majority leader, and publishing magnate Steve Forbes, a fellow Republican. It’s a fake grass-roots effort — what politicos call an AstroTurf campaign — that provides a window into the sleight-of-hand ways of Washington.[10]

((A reminder that all serious opposition is controlled by the ruling cabal. They play both sides. Keeps us off balance and provides a fake feeling of power)).

No. We budget, and we’re good at it.
Yes, no Maui vacations, no 300$ jeans and 400$ sunglasses, a second-hand Honda, food take outs every now and then, but it’s enough to have a little wine with dinner, grill veal steaks on weekends, enjoy delicacies whenever we feel like them, pay 620$ for daycare for 1 kid, etc.
You’d be surprised how little we sacrifice…

Actually, assuming they took a 5-year fixed at 4.5% with a 30-year amortization, their monthly would be $2,200. Property taxes would be (conservatively) $5,000/year, or add another $400, for a total monthly bill of $2,600.

Assuming their $130k income is split evenly between them, then their take-home would be $102,000, or $8,500/month.

Their combined annual RRSP contribution room would be $23,400/year (18% of $130k), or $1,950/month. Add another $830/month for TFSAs ($5,000/year/each), and so far we’re up to $5,380 of their $8,500 monthly income spoken for.

How exactly does that leave anything left over with which to have “a lot of fun?”
Miscalculation. Their marginal tax rate would be 29.7%, not 21%, and you are not factoring in the forced deductions for pension contributions. They may also have borrowed the downpayment (common these days), plus have a HBP to repay. — Garth

My wife and I (married 1 year) recently sold our cloverdale townhouse we purchased in 2008. After realtor fees and closing cost etc we lossed a few thousand dollars. But we are just happy to be out of the market. Nothing at that level (condo/townhomes) are selling without a major price reduction.

We have now moved into my parents basement suite in White Rock for the summer to regroup and evaluate our next move. Not a bad deal considering the rent is cheap and we have an ocean view from our suite!

Thankfully I have your blog to remind my wife whenever she gets itchy about buying a new home. We plan on renting somewhere in the fall and re-evaluate the market next year.

I found it interesting yesterday driving up Marine Drive in White Rock to see 15 houses for sale, and only 2 with sold signs in a 4 block radius. Where are all these chinese helicopters that the Global News keeps reporting?

Anyways, Thanks to SC & GQ for introducing me to your blog, I believe it has saved me thousands of $$$ by seeing the true reality of today’s real estate market.

But I said, “Assuming their $130k income is split evenly between them,”

That means they’re each earning $65,000, so wouldn’t that mean that their individual marginal rates would indeed be 22%? Your 29% figure would apply if it were one of them earning the entire income, but if it’s split, doesn’t it make their combined effective rate lower?

You’re right, however, that I forgot about CPP/EI deductions, and possible HBP repayment requirements – the situation is even worse than I depicted!

You are still wrong. A person earning $65,000 in BC has a marginal rate of 29.7%. Plus teachers are required to contribute rather heavily to their professional pension plan, in addition to routine deductions. Suggest you research, then type. — Garth

ok, house on 88 7th street in toronto listed $499,000 just sold tonight $630,000 so how the hell do we ever buy a house in toronto, we are two teachers make combined $ 175,000 per year, we can’t get in. What the hell are we to do, rent forever, this is crazy.

-the fact that teachers get paid that much is what is crazy. just sayin…

“Owning” a home has now become a religion, and the problem is also political. You don’t have to agree with the following commentary but you’re not arguing with me, you’re going up against my political professor at UofT way back in my college years. Here is what he taught me:

At their very core, all “conservative” parties are fundamentally opposed to democracy and equality. They foster racism, sexism, and all possible forms of prejudice and segregation and apartheid. The fact is that there really only ever has been one party in power in Canada. That’s why, for instance, only 4 people control all newspapers, radio stations, TV broadcasts, magazines, journals, political thinktanks, and ISP’s. And guess which political party they support? It’s not hard to see…turn on any AM radio station and hear the propaganda every morning, directing your anger at the wrong targets. It’s deflection. It’s a war, for your mind.

We, in Canada, are subjects of the British Crown. We have a constitutional monarchy. We are a neo-colonial regime. All of the land is owned by the Crown. We have internal colonialism with the native population who are by law deemed inferior. Your federal, provincial, and municipal governments are designed to maintain you as a disempowered cash cow for resource hungry “chartered institutions”. Look up what “chartered” means.

Never, ever, even for one instance, be fooled into thinking that you are free. You are worse than a slave because you don’t even know it. There is no future here for your children, unless you approve of them being milked and farmed for the rest of their lives. We must change the system, abolish the Crown and their “chartered” corporations and begin anew. We can do it. It’s just a matter of applying technology, political technology that will raise the standard of living for ALL.

Always and only buy what you can afford! Garth is absolutely and unequivocally correct, the bank always wins. In the 90’s, deregulation was the keyword in financial services. Banks wanted to make it easy to securitize their portfolios. They wanted to increase volumes. They got almost all they wanted. With this, they now obtain your mortgage, wait a few months, then package a bunch of them in what is called securitized packages and sell them to investors who want yield. They maintain administration (for a percentage fee) of them but don’t own them anymore.

So if you deal with a major bank, call them and ask them if they own your mortgage or if it has been securitized. The risk to you is minimal but it regularly happens. In the US, this is why so many people don’t know who owns the mortgage. You may want to deal with a particular institution but they have probably already sold your mortgage(the paper) to someone else and only want the volumes. This is why the bank doesn’t care if there is a meltdown since they don’t own the product anymore. They are the consumate middleman. Using your deposits to lend, then selling off your mortgage for a fee. The end consumer is the one that gets the shaft.

I don’t use the term “slave” lightly. For any of you that haven’t worked a day in a factory in one of the major metropolitan areas of this country, in a small or medium-sized business with no union, you have no idea. Prison is preferable, believe me. You don’t speak English fluently, well, then you are treated worse than a dog, literally. Oh but that is just an anomaly, eh? It isn’t. It’s the norm. Your government encourages it through non-action.

If your leadership, in essence, and by definition, is a polite form of dictatorship, what possible incentive would there be to be swayed by any type of moral or ethical prerogative?

Symptoms, of a political system of a by-gone era, still thriving right here in MY country. Nothing will change, unless YOU change.

Two teachers making $175,000 is ridiculous. And that’s not the half of it. Add in a ridiculous pension subsidized by the taxpayers… The early retirement factor… Exorbitant amount of holidays…. Oh yea, and the built in sick days every month … And what you have is an affront to taxpayers. Oh,and they’re crying the blues they can’t afford a house. Get in the real world folks.

ok, house on 88 7th street in toronto listed $499,000 just sold tonight $630,000 so how the hell do we ever buy a house in toronto, we are two teachers make combined $ 175,000 per year, we can’t get in. What the hell are we to do, rent forever, this is crazy.

-I live on 7th street, and I know the house you mention. It wasn’t worth what they paid for it, not by a long shot.

That being said, if you both make 175,000 a year and you cannot afford that house, you have seriously bad money management skills.

I will remind you that 80 years ago (ironically the era that house was probably built in the 30’s) NO ONE could afford to buy a house but the very rich, EVERYONE rented.

Jim and Vesha have avoided personal calamity (good thing) but having sold to a buyer who is unlikely to service debt in downturn and will probably put loss on backs of taxpayer (bad thing). I’ve been seeing alot of this, good credit risk selling to bad credit risk – with each sale the liability to society becomes greater. The debt bubble cannot be escaped, whether individual or society at large someone has to pay.

I think we can officially start the RE downturn clock ticking, the US economy is rolling over which is probably going to be the seismic event that kills confidence and pushes Canada over the edge. Watch out for the falling knife. This summer could be last opportunity for folks like Jim and Vesha to get out, though as a taxpayer I secretly hope they all stay put.

We recently just closed our 1bed condo in Coquitlam and have moved to Victoria. We got out, at a loss after commissions and all, but still with about 1/4th the original down payment in our pockets. All I have to say is I would have never paid for that new condo what my now wife did. It was obviously too much money. She would have been better off buying something older just across the street, with larger sq ft. NO construction noise for a year, and much cheaper without the GST.

We are renting now, and thanks to your advice we will not be putting any less than 10% down on a place in the future, more like 25% given the time frame we have to save.

Garth all I have to say is “God is great, beer is good, and people are Crazy!”, particularly when it comes to property ownership. (Can you actually call a box in the sky property?)

A wise old proverb says, “The rich rules over the poor,
and the borrower is the slave of the lender.”

How true this is today! Debt is not an asset, and when the debt is harder to service than the asset is worth then you truly are a slave to the debt, and whomever you owe it to.

There is much indignation from commenters here re: teachers’ compensation.

Personally, I don’t care what others make—unless I’m the one paying their salaries.

If you, as a tax payer, really want some piss in your coffee to get yourself riled up, look into what public sector workers make vs. their counterparts in the private sector. I’ve read stats that range from 50% to 100% more in many cases. Yes, that much. Do some research of your own. What you do then is up to you.

Now, I have many friends and family in the public sector. God bless ’em, but bar none, they make more than the their private sector counterparts––and they work less.

Not to give guys like BPOE any ammo, but all the talk of tax rates in BC had me curious. If my wife and I moved from MB to BC and retained our current incomes we would have about $9000 more after income taxes. Comparatively, people in BC with decent wages have loads of disposable income (if they didn’t blow it all on a house).

T.O. Bubble Boy, your comparison of Obama’s mansion and that lovely house in Van. or the one in To. is apples to oranges.
First and formost, who in their right mind would EVER move to Chi. I mean really, they don’t even have a good hockey team. (A la. Toronto Maple lefts)
Then, that bung in To. has a southern exposure. Come on man get real.
As for the lovely little bung in Van. city, well, I mean, IT”S LOTUS LAND, (have you ever priced out the profits in crack?) and we have the Canucks get it right, find a comparison that works.

Absolutely. wrh.com dropped Jones some time ago when his true motives were revealed, from his own mistakes. Other writers at prisonplanet are far better, reporting facts and not opinions.

There is much happening in the world (and out of it), the vast majority (95% or more) sheeple don’t know anything about. It is to their detriment they don’t bother to do any basic research and investigation.

#9 torontorocks — “FRIST!” — or Tsrif!

#42 Popeye the sailor man — “. . . when Garth says ‘This will not end well’, . . . [which leads to unintended consequences, such as] . . . “The saddest part of all this is the strain it will put on young families not just financially for years but things like, putting off having kids, divorce, stress, health issues, abuse, or worse.”

These are the unintended consequences of choosing to put oneself deep into a fiscal hellhole, based on what one’s peers say should or shouldn’t be done, and it’s not a great way to live.

#44 Carp — “P.S. I love my wife – she understands – a rental is a rental and long term thinking is best.”

That’s right — here today, gone tomorrow, so long-term planning is the best bet.

#50 Jane — “Why is the BoC not raising rates yet?”

TPTB haven’t given their blessing yet. When they do, we will be the last to hear about it. We will have the rug pulled out from under our feet, then we will be told.

#65 Jody — “. . . the rich who run this country would no longer be rich! And they know it!”

Correct, but what of revolutions (such as Europe, the ME etc.), with citizens getting thoroughly pissed off at the inequities of life, the rich getting richer, the gap between rich and poor growing ever more?

Don’t forget the French Revolution, when peasant had nothing left to lose, so they lost their tempers, got angry and overthrew the monarchy. Not a bad idea for us.

Big trouble — second half of 2011 and on, many things about ready to happen, most of which we don’t even think of.

#99 disciple — “It’s a war, for your mind.” — The mind is an adequate to good servant.

We all have our own box of toys to rearrange and play with any way we want to, and as everyone is guaranteed the right to the freedom of choice to choose to do what they want in life, the spiritual law of non-interference strictly prohibits anyone from ever interfering in another’s path or life.

#105 Hoof – Hearted — This green scheme is an overall part of the carbonazi tax which the oil companies are trying to pressure govts. of all sorts to introduce, and ultimately to tax us beyond belief.

The planet is in relatively good shape — it’s sheeple that have become screwed up.

#109 Bob — “. . . NO ONE could afford to buy a house but the very rich, EVERYONE rented.”

People survived, surprisingly and to some extent prospered. Not having expenses flying out of the door unnecessarily does lead to good things!

You are still wrong. A person earning $65,000 in BC has a marginal rate of 29.7%. Plus teachers are required to contribute rather heavily to their professional pension plan, in addition to routine deductions. Suggest you research, then type. — Garth

That we pay the lowest ranks of UNI grads $87,500 p/a to teach is a travesty…but consider that they will double that will the outrageous pension…perks…and early retirements that include full medical and dental…..all subsidized by the idiot taxpayer.

BTW….it’s double what they pay teachers in Washington State. I have said it before…….why can’t we have ‘guest worker’ teachers…as they do in some European countries….to come and do the work for a fraction of the price. We have them in on temporary work permits and rotate them when their contracts are up?

Teachers in India for example speak perfect English..are usually far better educatated than Canadian grads and would be had for a fifth of what we have to pay these pigs in the trough we call ‘civil servants’.

If you want to play the race card …then fine…bring in the Americans and pay them half what we do the locals.

BTW…the same go’s for firefighters, civic workers ( landscape, road crews parks etc….after all we train them all at our expense with our equipment which we give them for free).

There are a lot of well trained people in Mexico who would be happy to come as guest workers. Why do the arrogant and racist anti immigrant unions keep these people from feeding their families while also providing a service to the taxpayers?

The average Canadian owes $26,000, excluding mortgages according to TransUnion.
Well, there goes any chance that consumer spending will be the driving force which will take us out of this recession.
Governor of the Bank of Canada Mark Carney was dead wrong! The economy isn’t fragile .. it’s a nightmare!!! .. surviving on borrowed money and the credit limit is running out..

The Speculation -O- Rama that is the World oil market is going to carpet bomb your family budget. The price of EVERYTHING is going up. “I had to sell the house to buy groceries and fuel the SUV” will be the new mantra of what’s left of the Middle Class. Jim and Vesha found out that doesn’t always work either.. they lost a chuck of their down payment. .. and things are not bad yet. Wait till Carney starts raising interest rates in earnest. Middle Class will be just another word for Road Kill.

The Minister of Finance and his buddy at the Bank of Canada set the trap. It’s the perfect setup for a deflationary spiral. As a nation, we’re all going to have a serious awakening. There really is a nasty side of living beyond your means. Dropping housing prices are just a symptom of a system that full full of dry rot. Government trade policies crushed the manufacturing sector. Our reliance on trees in the ground and minerals under the ground have left us vulnerable to the vaugeries of those speculator driven markets too.

The I.T. sector is being outsourced to countries like India at a furious rate. Those “sure thing” jobs of the 1980’s are now much harder to find and grads with BSc. degrees in computer science are now “Nerds & Geeks in Helicopters” repairing your home PC.

Plants in Canada continue to close and the machinery in those plants is packed off in sea containers to South America, India and the Asian continents. Think those jobs are coming back? A lot of firms in the auto parts business are quite busy these days. In the economic brawl that was 2008 to 2009 , they are the last firms standing in their sector. Are they hiring? Mostly temps through the local labour provider. To the Government of Canada … these workers are fully employed.

The oil industry in Canada is peachy! I guess if you’re the Member for Calgary Southwest … the Canadian economy is perfect. Time to slash the Federal Public Service by one third, eh?

The biggest mistake this couple made was having too small of a downpayment, which resulted in the carrying costs of the house being far more than they could reasonably afford. Which is far different than saying they shouldn’t have bought a house in the first place.

When people take the time to save an adequate downpayment, and buy a home that is within their means, home ownership is not necessarily a bad thing.

Admittedly, IF folks rented, saved the difference in living expenses, and invested wisely, they’d probably come out ahead financially years down the road. However, the truth is that most folks wouldn’t do that, preferring instead to spend their monthly windfall on frivolities (like trips to Hawaii). And years from now they’ll have lots of happy memories, but no house and not much in the bank.

So, while I agree with Garth that Real Estate is not a good choice right now for investment purposes, that does not necessarily mean it’s not a good choice for those who are looking for a principal residence. It’s all a matter of what position you want to be in 15 or 20 years from now.

If you don’t buy a house, but also fail to save and invest, you’ll be no further ahead when the time comes for you to retire. For some folks home ownership is an enforced form of saving. And while it may not always be the BEST vehicle for building a nest egg, it sure beats not saving anything at all.
Few people last five years in a home today, let alone 15 or 20. And for first-time buyers, there’s a virtual 100% chance they will not be there a decade later. — Garth

#106 IslandJack on 06.01.11 at 10:59 am
I’m not a teacher, but the 4-5yrs of schooling $ plus another 5+ years it takes to become a full time teacher -$ makes me believe 70g’s a year ain’t that unreasonable.

Now why we have a shortage of Doctors and Nurses?
Because these teachers make half to teach rather then work.
……………..

My better half is an IT supervisor in our local school system. He and his techs are not unionized, BTW, and don’t have a defined benefit plan. He believes that teachers & the School Board have relied too heavily on technology. The internet went down in one of his schools the other day for a few hours. Teacher was very upset & basically left the kids to do nothing. Hubby was po’d & said to her – you have a white board & a curriculum to follow – why can’t YOU teach them the old fashioned way. No doubt hubby is on her shit list.

Apparently all the elementary school kids in the fall will receive some type of small laptop that they can take home – with limited software & not their personal property – but still. Young children today can’t add 5+7 without using a calculator.

You must be acquainted with Stoneleigh and Ilargi (?) BTW, they predict Can RE prices to drop by 90%. And you thought Garth was a prophet of doom.

You make the point that jobs are being shipped to emerging markets. There’s another potential emerging market I think Canadians should be aware of, and which could prove even more harmful to Canadian jobs then China, India, Mexico, et al: the southern US.

My dad used to tell me when I was a young man, that “there are no jobs left except for salespeople”. That was about 25 years ago. I didn’t exactly believe him until I observed during my career the wealth of this country leave via manufacturing and industry over the last couple decades. But cheap money kept my Generation X compatriots allured to the game. There’s very little left of the old ways. Most job titles now are just fancy names for roles that sell something, as opposed to helping to make something.

Well, Its become clear even to the naive, what the Fed has done to the U.S economy over the past 100 years, and more specifically the last 40 years. It is nothing more than a criminal syndicate that has looted and exploited the country to the brink of collapse. A Phd in Keynesian economics is nothing more than a ticket to failure.

“Miscalculation. Their marginal tax rate would be 29.7%, not 21%, and you are not factoring in the forced deductions for pension contributions. They may also have borrowed the downpayment (common these days), plus have a HBP to repay. — Garth ”

You wouldn’t use the marginal rate to calculate their tax bill in that circumstance, you would use the average rate (which at a glance looks like it’s around 22%). Pension contributions would reduce their rrsp contribution room (in the following year) so it’s not really relevant. Your other points stand.

I used to think the easy way of expressing the housing mania in Canada, was that it was not necessarily a Real Estate bubble per se, but almost exclusively a housing PRICE bubble. But even that argument has gone somewhat soft:

#133 TheBigLebowski on 06.01.11 at 1:59 pm
He’s a senior economist (PhD) with the Fed. And you are….? — Garth
Congratulations Garth, you have identified the problem!

#102 disciple on 06.01.11 at 10:33 am
You don’t speak English fluently, well, then you are treated worse than a dog, literally. Oh but that is just an anomaly, eh? It isn’t. It’s the norm. Your government encourages it through non-action.

government non-action is perfect. These dog people you speak of are free to leave or better themselves, they’re not slaves, big difference.

#113 JohnnyBGood on 06.01.11 at 11:57 am
Personally, I don’t care what others make—unless I’m the one paying their salaries.

If you use Canadian currency then you are paying public sector salaries. Someone here asked about taxes on dollar denominated increases in the price of their precious metals, paying taxes on non-productive, fixed, unchanging, inert metals due only to the passing of time and devaluation of currency is in fact paying for teachers salaries. It’s called inflation, we’re all paying, except if you’re collecting.

#123 realpaul
If teaching is such a great deal….then spend the 5 years in university and, more than likely, 3- 5 years on the substitute list,then 10 years working your way up to the top of the pay scale…… and spend your career interacting daily with 14 years olds.
#129 Live Under Your Means
Agreed…technology does seem to be taking hold…is it a fad…or just how important is it? I believe a happy medium must be sought.

HUD (one of the great champions of giving things away for free in redistributive heaven for the “economically challenged”) is that those who work twenty hours a week and have “other” economic difficulties are being put into the foreclosed housing with zero interest loans And receiving 105% loans so they receive moving costs.

I call B.S. – prove it with a link to a reliable source; surely if it were true, the HUD website would be advertising “free foreclosed homes for welfare slackers” wouldn’t they? Wouldn’t these alleged 0% 105% LTV loans could solve the US housing crisis single-handed? Think of all the govt. $ flowing to banks, sellers, etc.

How long will we have to put up with hearing the news about Gold beating stocks since year 2000, even though that was a rare event and in the long run stocks have trounced Gold? You know it, I know it, and God knows it…

Higher education is under attack in some quarters. The prevailing attitude is that higher education does not impart the actual skills necessary to succeed in the workforce.

This is happening particularly in the US where graduates are having a hard time finding some jobs because of the economy. (A disconnect between skills people have and skills that are needed doesn’t help either). Not to mention the fact that many private colleges and universities operate like government milking machines first, and as schools second.

A few points…

First of all, the idea that higher education has little value is patently false. Would you go to a doctor who practised dissecting squirrels in their spare time? Or would you hire an engineer who did not know the difference between a moment of inertia and a moment in time?

Second, yes when you go to school, some courses are filler, so to speak, but there is value to a well-rounded education that combines practical knowledge and skills with the background theory and history of that chosen field of study. Before you know where you are going, you have to know where you came from. Innovation comes from building on others’ ideas. The more you know the better.

Third, the most important thing higher education can teach is critical thinking–how to think for yourself (and yes this does take a lot of practise) so that you can make important life decisions based on a critical, objective analysis of the facts, and not believe or do things just because your friends, media or government tell you to

I know one thing for sure and that’s you only get 1 life to live. If you choose to make it one of sacrifice to please your sense of vanity and the perception of self worth from obtaining material goods life is not really worth living. Why bother killing yourself to maintain something you clearly cannot afford and sacrife all the beauty life has to offer when really you only rent it in the end? You can’t take your hard work or home with you when you leave this world.

Well, billions would disagree about having only one life to live. Different belief systems illicit certain behaviour and attitude. From my understanding the majority of people following major eastern faiths/religions believe in reincarnation and karma and this could have something to do with tolerance of oppressive caste systems in India. Not sure how disabled people are viewed but if in a negative light then the reason could be they are paying off a karmic debt from the present or past life. So maybe not too much compassion shown to these people or the poor because their lot in life is somehow “deserved”.

Christianity abolished the notion of reincarnation 600 years ago, so most christians believe we only go around once. And because most of the developed nations are materialistic and predominantly christian, this promotes materialism. People have strayed from spirituality and the peace and happiness which can be derived from this pursuit. Rather, for many people it is about accumulating wealth. For some it is a matter of trying to survive whereas for others it is achieving status and leaving a nest egg or one’s legacy for their children and grandchildren. This is why despite the fact that we can’t take “stuff” with us when we croak, it doesn’t really diminish this materialistic pursuit for many people.

One area that is being discussed regarding education are the costs versus the actual economic value. There are lots of studies coming out saying that even traditionally lucrative degrees in Law and other professions are not worth the costs.

One factor is clearly the rising costs of education. Like housing, the costs of education rose because of access to debt as opposed to real increases in value. The education “bubble” is similar in this respect.

Re: #141 Fiendish Thingy on 06.01.11 at 3:04 pm
@#52 the duke
HUD (one of the great champions of giving things away for free in redistributive heaven for the “economically challenged”) is that those who work twenty hours a week and have “other” economic difficulties are being put into the foreclosed housing with zero interest loans And receiving 105% loans so they receive moving costs.

I call B.S. – prove it with a link to a reliable source; surely if it were true, the HUD website would be advertising “free foreclosed homes for welfare slackers” wouldn’t they? Wouldn’t these alleged 0% 105% LTV loans could solve the US housing crisis single-handed? Think of all the govt. $ flowing to banks, sellers, etc.
Your anecdote doesn’t hold water.

I found this Howe Institute note telling, and when things further unravel, the CDN economy will get caught up in the storm.

The Canadian Dollar is No Haven from a US Dollar Collapse
Tuesday, May 31st, 2011 | Filed under The Dollar Vigilante | Posted by The Dollar Vigilante

We spend a lot of time here at The Dol-lar Vig-i-lante chastis-ing Ben Bernanke and the Fed-eral Reserve and prepar-ing our sub-scribers for a col-lapse of the US dol-lar – some-thing which has been pay-ing off very hand-somely, with gold and sil-ver at record highs this year – but don’t take that to mean that we pre-fer any other fiat cur-rency. No fiat cur-rency in the west-ern world is any bet-ter than the US Dol-lar. In fact, in every case, they are worse.

The Fed-eral Reserve is still, despite its secrecy, one of the most trans-par-ent cen-tral banks in the world. It also has, over the last cen-tury, despite inflat-ing the dol-lar down-ward by 97%, been one of the least infla-tion-ary banks.

We often hear of peo-ple denounce the US dol-lar and cor-rectly divine that it is headed to worth-less-ness, but, in the same breath, they say they own other fiat cur-ren-cies like the Cana-dian dollar.

This is a case of igno-rance of the work-ings of banks like the Bank of Canada – or vir-tu-ally any other major cen-tral bank in the world, for that matter.

There are numer-ous rea-sons why the Cana-dian dol-lar will not sur-vive a US dol-lar collapse:

– The Cana-dian econ-omy is very tied to the US economy
– The Cana-dian Gov-ern-ment is intent on devalu-ing the — Cana-dian dol-lar along-side the US
– The Bank of Canada has vir-tu-ally no gold back-ing the Cana-dian dollar
– All that does back the Cana-dian dol-lar is the US dol-lar and other fiat currencies
– The Cana-dian dol-lar is not used globally
– The Cana-dian Econ-omy is Very Tied to the US Economy
– We need only show one graphic to make this point:

We had a little reprieve down here, but now were going straight into the toilet again. All those knife catchers from the last few years-I don’t even want to think about that. And yes homes are cheap, especially based on rents, but you can’t give these things away. And we have now a situation where they are building a lot of new houses and not buying existing. And we already have an obscene oversupply. Luckily there are a lot of amateur landlords or I’d really be sucking. Six years ago you’d tell people you’re in RE, and they’d go nuts asking you all kinds of questions and acting like you’re some kind of otherworldly being. Now they just look at you like Ha! What a shithead or they offer their condolences.

#51 Aussie Roy on 06.01.11 at 12:45 amBest way to stop bubbles is to go back to REAL valuations, not simply look at a currents suburbs sold list. At present valuations are really pric-uations a REAL house valuation is how much income it can produce. If mortgage valuations were based on rental return say 8%pa, many million dollar crack shacks whose rental yield is 3-4%pa would be revalued at 50% of their current pricuation.

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Isn’t the real valuation whatever people are willing to pay for it, regardless of its ‘income potential’?
Look to equities for another example of where valuations appear out of whack.

This is why the residential real estate market is so difficult to pinpoint in value/price considerations. You’ve got people who just want a place to live and own. You’ve got flippers/speculators. You’ve got seasoned landlords and newbies. You’be got banks, realtors, home inspectors, lawyers, insurance companies. You’ve got the condo segment, the single family segment, the urban, the suburban, the rural. You’ve got the overall economy, the transportation networks.
With all that, and more, who knows what the f*** the thing is worth.

Garth – I’m sure you’re just shortcutting it to make it simpler, but that’s simply incorrect the way you wrote that.
i.e. Credits do not reduce total income. And marginal tax is the rate applied to additional dollars of taxable income, not every dollar…

Agreed, sheeple are waking up to the realization they’ve been taken for a big time ride, and RE is one of many surprises in the offing.

The Eight Families of the Federal Reserve cartel. Between them, the Rothschilds, Rockefellers and other multibillionaires have (on or around) combined, a quadrillion or so. That is why they move the puppet strings, we are merely the puppets. They choose the leaders, we obey them as good puppets do.

But step out of line, toss up unexpected questions and they take note, then react. What is the worst anyone can do? Kill us? We all have a best-by expiration date, a short life-span so it doesn’t matter anyway.

Tickle our fancy? Well, that would be unexpectedly nice! Let’s see how far their massive volumes of wealth get them in the other worlds, inner planes or other side. My money is on ‘Not Very Far!’.
*DSK ally —See this.

7:51 clip Fukushima could have been prevented, so it appears HAARP and the Stuxnet virus have been working overtime! The Dead The ‘net kill switch has been resurrected.

Dow “PPT stepping in to fake out investors, but failing”. May Mfg. cooled off.

Another Protest “That this organization is planning a second flotilla at the end of this month is an act of courage and defiance against the siege of Gaza: one has to admire these people, knowing how the Israeli military will probably treat the humanitarians who have volunteered for this trip.” wrh.com. Which is Worse? A third term for dubya, or Obama with a NPP?

1:58 clip 1945 Berlin. “Thank you so very much greedy bankers.” Spain “Spaniards protesting the handling of their country’s economic crisis have vowed to keep their tents in central city squares this week.” Continual Screwing of Jefferson County.

Beyond GMOs.”NutriSmart prototype embeds RFID tags directly within food, traces your lunch from start to finish (video)”, and FEMA and Katrina “Memo to the completely brain-dead management of FEMA: with what jobs, pray tell, are these still largely unemployed people supposed to pay this money back?” wrh.com.

Saw a three-storey semi in Toronto at an open house on Saturday. It had an Ikea basement studio apartment that was one of the nicest ones I’ve seen but a studio nonetheless (supposedly the rent was $1250).

The rest of the place was tricked out pretty nicely, too. Renos were all permitted. An anomaly, really. The house was crawling with hipsters in this nice (Bloor/Dovercourt) neighbourhood. As we walked away with our agent, he told us the place, though listed for $649,000, would go for somewhere in the $700s. We just shook our heads. Pass.

We woke up to an email from our agent with only one word — Wow! — and a link to the sale price: $792,000.

I imagine these buyers are bathed in a cold sweat after seeing the drop in the stock market today. That bidding war victory last night must seem like something else altogether now.

UK: Aggressive tax avoidance schemes to be blacklisted Accountancy Age
May 31 – “A list of the most “aggressive and contrived” tax avoidance schemes will be published today as part of a series of proposals by the Taxman. Their publication by HM Revenue & Customs will require taxpayers who use such schemes to pay the tax bill upfront or face a bigger bill after an investigation if the scheme is shown to be invalid, the Financial Times reports.”

==================
opportunists
May 13, 2009
what happened with this loophole?
“In an era of fiscal belt-tightening, news like this is unacceptable,” said Hughes. “We are going into deficit to be able to weather the economic storm, only to find out we have to make these payments because the companies like the interest rate better than the rates they are offered by financial institutions.”

At the heart of the problem are corporations leaving large balances in their accounts and receiving interest rates in the five to seven percent range. The Auditor General pointed out that the Canada Revenue Agency has attempted to refund the balances left in these accounts but these efforts have had “limited success.”

“When the Auditor General tells us that the Canada Revenue Agency has known about this since 1991 it certainly paints a sombre picture,” added Hughes. “The agency should have made this known sooner. I don’t think Canadians will appreciate the inattention of the CRA or the opportunistic behaviour of the corporations involved.”

While I think teachers provide a vital service, pay will likely come under pressure eventually. Check out http://www.khanacademy.org/ – the content is amazing and it is free. Surely the premium we pay teachers will erode over time.

168 PB in Ont…The khanacademy is a step in the right direction. I have a similar vision (educate the world as khan says himself). His learning objects are traditional chalk and talks for the most part. Research has shown that interactive learning objects are the way forward (animations students can interact with, along with khans type of learning objects acting as adjuncts are the way to go). I do not see the replacement of a classroom teacher but rather a teacher being another resource students can reference as they educate themselves…

#140 Lorne on 06.01.11 at 2:39 pm
#123 realpaul
If teaching is such a great deal….then spend the 5 years in university and, more than likely, 3- 5 years on the substitute list,then 10 years working your way up to the top of the pay scale…… and spend your career interacting daily with 14 years olds.
#129 Live Under Your Means
Agreed…technology does seem to be taking hold…is it a fad…or just how important is it? I believe a happy medium must be sought.
…………………

It seems v. important here. Must say tho that my better half also feels there are some very caring & concerned teachers and principals. He’s only been in the school system for 11 yrs. It’s at least his 3rd career change.

Further on some analysts actually are looking at that almighty abyss and realize = the Day of Reckoning, *with apologies to Mr. Bonner and Wiggan, is HERE.

Russia bumped 0.25 the other day – and no one was expecting it.

American Silver eagles are sold out. HUH?

Noticing high end rentals in Vancouver are cutting prices.

Friend sold home for less than he paid for it 5 years ago – and he said he will never buy again.

Mr. Turner said it today – and it has started. People see what is happening and many are going ‘faggedaboud it”. A Home is not a BANK, ok? Condos in Vancouver are so overpriced it really is laugh out loud stupid.

Renting is great – no more condo meetings. No more lawsuits, whiners, and if something is broken – a really nice guy shows up and it’s fixed.

I wish everyone would at least read one of Mr. Turner’s books. This gent speaks in language even dim bulbs like me can comprehend, and he is also really into making this all make sense.

Maybe Flaherty should read one – on second thought, the big words like DEBT and FIAT might be above his ken.

I’d be interested to see the studies you alluded to. Obviously, for most people the expected career income would have to outweigh the cost of the education plus any associated debt charges, and the opportunity cost of not working while in school.

One could say–with tongue in cheek– that cheap money is the root of all evil because it makes things like education and housing MORE expensive, not less expensive.

JohnnyBGood I’m in the southern US quite often. There are just as many abandoned industrial buildings down there as there are up here. If the US dollar drops down to $.90 Canadian … well, yes. You’re right. There would be a mass exodus out of Canada. Most likely to the Southern USA.
Many Canadian plants moved to places like LaGrange , Georgia in the 1990’s. It was a popular because of its temperate climate, union busting right to work laws and cheap transportation to principle markets.
After a few years, when costs in Georgia became too expensive. They packed up once again and moved to the tax exempt border Maquiladoras in Mexico. When Northern Mexico became too expensive, too dangerous and too corrupt they packed up again and headed across the Pacific.

thinktwice … The biker from Milton may have promised mortgage rates would go up. Well, declining interest rates indicates that the demand for mortgages is dropping. It’s that old supply and demand thing again.. Only Governments decrease interest rates when demand is high. At the end of the day you get the same thing … house prices are heading down. It’s important to remember … All economic predictions are based on ceteris paribus ….. all other things being equal or held constant. Like when does that ever happen in this crazy economy, eh?

Wow. Take it easy. I’m a teacher. If you think I’m overpaid for my “simple” work I invite you to get your teaching degree and join me. I know some who have done just that and they tell me that their previous job was like…Oh how did they put it? “A day at the beach” compared to what I do all day. I don’t judge other professions because I realize that each has its own day to day grind. Yet I’m continuously insulted by public opinion of teachers. I have students who came to my class in September not knowing the alphabet and are now reading chapters books. Try doing that with 26 grade 1 students. And reading is just one of the ten subjects I teach them. A little respect please.

Speaking of respect….Garth, your blog rocks! I read it every day! A+ :)

I don’t know. Other than the very high and rising costs, are any of the issues you mention really anything new? Not to say they are not valid, though.

All institutions, organizations, agencies, etc. have their agendas, and always have. The way to insulate yourself is knowing what that agenda is so you can filter the info they impart.

I tell my young son to always obey and pay attention to his teachers, but to never blindly accept what he is being taught in school. That he should never check his mind at the classroom door, and (politely) challenge that which he feels is incorrect or unfair.

Some people, such as Charlotte Iserbyt (who also claims her father and grandfather were Bonesmen) says the education system in America has been deliberately dumbing down students for decades. Even if one does no research, there is plenty of anecdotal evidence of that, eh?

And yeah, I have encountered many clueless new grads in recent years. A few of them have worked for me. Their arrogance and sense of entitlement are far out of proportion to the contribution they make on the job. However, I comfort myself with the notion that maybe they aren’t that much worse than my generation was when we were starting out, and that they too will mature and come into their own with time and experience.

That said, I’d rather have more educated people rather than less. But education does not stop at the school exit. One can learn a great deal on one’s own and from others out in “the real world.”

#169Hoof-That isn’t what usually happens-the muscle is cut and the fat is kept when guvs cut back-this way the public feels the pain and squeals for more spending. There was discussion previously about teachers-every school board devotes an absurdly high % of overall salaries to school board office bound time wasters-if budgets need to be cut the teachers will feel the hit not the bureaucrats.

why such hostility towards teachers. I may be mistaken but this is supposed to be about real estate and investments.
BTW- teachers earn top end $94,600,That would include JK teachers!
VP- 105-115,000
Principals- 120,000-130,000.

Thanks for the info. My thoughts on the southern US stem from a few observations:

? as labour costs rise in China and decline in the US, US labor becomes more attractive
? housing is cheap(er)
? China has massive infrastructure and energy problems that can make production spotty and quality (well, you know). I worked for a Chinese company, and I can tell you the reject rate at Chinese manufacturers is stunning.
? high real oil costs make it more cost effective to put production closer to the markets they serve
? technology is diminishing the labour cost advantage
? US is still one of the most resource rich countries in the world (commodities, education, human capital, energy etc.)
? there actually are real reports of an industrial revitalization. Sure there’s a long way to go and the road may be very bumpy, but it has been slowly gathering momentum.
? gov policies to “put people back to work” can be implemented (haven’t really looked into this)
? Forget Mexico; it looks like it’s all but a failed state as you pointed out

Yes I’m still here. I never left, who could leave the pull of Garth’s raper wit.
Yes I’m still a free market libertarian that holds Mrs. Rand in high regard. Judging by your link I’ll guess you’re still a Marxist?

There you go with your goofy left-right paradigm again? Democrats, republicans, same difference. You’re making it out like Reagan, or an aide to Reagan, is some embodiment of even the spirit of free market.

Thanks for the link, however, in perusing this massive site, which has tons of information, including lots on HUD corruption, I could find no evidence to support the claim that HUD is (or has been since the 2008 crash) been giving 0% interest 105% LTV loans to part time workers or welfare recipients in order to purchase foreclosed homes.

While I agree with you that there is little essential difference between the parties nowadays, the neoliberal policies many now have come to accept as normal were ushered in by Thatcher in the UK and Reagan over here. Besides the point was whether the article was Marxist in spirit, which it was not. I find Robert’s stance on many issues astonishing given his background and history…same with Stockman.

“There are a lot of well trained people in Mexico who would be happy to come as guest workers. Why do the arrogant and racist anti immigrant unions keep these people from feeding their families while also providing a service to the taxpayers?”

“If teaching is such a great deal….then spend the 5 years in university and, more than likely, 3- 5 years on the substitute list,then 10 years working your way up to the top of the pay scale…… and spend your career interacting daily with 14 years olds.”

Here here.
It’s seems Canadians number one pass time now is looking over the fence to their neighbor and crying foul if they think they’re better off then themselves.
Sad really, witnessing the race to the bottom.

My first (and only) year teaching: $42 000 in a tiny town I’d previously heard described as “If Alberta ever needed an enema, that’s where they’d put the hose.” It was the only place I could get a job despite a supposed-to-be-marketable physics/chemistry background. Heavily involved in 5 extra curricular activities with the students. Unable to fix 16 years of students hearing the term “I seen” and thinking the past tense of “come” is “come”. (“So I was standing there, and he come around the corner. I seen he looked real angry…”) 1200 people to 15 church ratio.

I now work as a medic in the oil patch. My last 22 day stint garnered me a paycheck equal to 80 days of pay as a teacher. And this job is easier. Waitressing was easier. Going through basic training in the army reserves was easier. Working on car with an ambulance service was easier.

People who are speaking ill of teachers and their pay: have you ever had someone with no training or experience in your field tell you what’s wrong with your profession? That’s not really intended to be rhetorical. Stop and think about it. You can’t really understand a job/profession until you actually do it.

Even at the current job, many welders (the jerkiest of the trades) like to make comments on how I should be a medic. “What’s wrong with medical professions is they don’t think outside the box. I mean, why always an IV in the hand or the arm? Why not the foot?”

#211 – T-Party, not sure what your rant has to do with irrational “free enterprise” policies fuelling real estate bubbles but I’ll take the bait. Speaking from experience, some of the jobs I’ve had that were less stressful and much more lucrative than teaching teenagers include construction welder in -30 in “Cowtown”, commercial diver, sales rep, military (navy). Before you wade in with both boots, keep in mind that society expects schools to both teach and parent now. It wasn’t always so. Schools are loaded with kids that have fragmented homes; are required to retain kids who, in a less inclusive time, would have been expelled or kept apart from the mainstream. I betray my age when I recall that we were terrified of the call home from the teacher or principal due to some youthful misbehaviour and were much happier just to take our lumps at school. The caring professionals that fill our schools are being asked to take on society’s burdens even though the remuneration is practically the lowest of all comparable professions. There was a time when a teacher could support a family on a single income; even purchase a reasonable home in a modest neighbourhood. T’ain’t so anymore is it? And no, the class size concern is no red herring; there is nothing more painful to a teacher than to step into a classroom day after day knowing that each student in the room will not get their fair share of the learning experience. “Grinding caregivers into submission” is hardly the way to motivate them to do the job well (which, oddly enough, is the preparation of young minds for learning and life – a modestly important task).

The views expressed are those of the author, Garth Turner, a Raymond James Financial Advisor, and not necessarily those of Raymond James Ltd. It is provided as a general source of information only and should not be considered to be personal investment advice or a solicitation to buy or sell securities. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor's circumstances and risk tolerance before making any investment decision. The information contained in this blog was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Raymond James Ltd. is a member of the Canadian Investor Protection Fund.